Life insurance can ease financial pain points of the middle market. But can you really make a living serving these clients?

When you’re considering potential clients for life insurance, the middle market may not be your first choice. Certainly, high net worth clients who need tax planning strategies, flexible estate planning strategies and a larger death benefit are a lucrative market.

But you may be missing out on a large pool of potential clients who need life insurance coverage and could benefit from cash value life insurance like fixed index universal life (FIUL) insurance to potentially supplement a retirement planning strategy or college funding.

In a 2022 study, Allianz Life Insurance Company of North America (Allianz Life) took a deep dive into the financial needs and mindsets of middle market consumers. They surveyed 800 individuals, aged 25 to 45, who contribute to a company-sponsored 401(k) and have discretionary income to spend on products that can address common concerns around financial risks. [1]

Significantly, Allianz found that nearly half have never worked with a financial professional — a huge, often overlooked opportunity for referrals, increased revenue and new life insurance sales.
However, misconceptions about the middle market may be standing in your way. Let’s look at three myths and how they’re challenged by the findings of the 2022 Allianz Middle Market Study.

Middle Market Myth #1: They aren’t interested in life insurance.

The middle market cohort is made of people between 30 and 45 years old who’ve been pursuing their careers for a number of years. They understand the importance of retirement savings and tend to have a 401(k) plan into which they’re contributing up to the company match.

They’re also aware of a variety of financial risks. Concerns about inflation, access to cash in case of an emergency, market volatility and having multiple sources of income in retirement were all top of mind in the survey.

At the same time, respondents often believed cash value life insurance was too expensive or too confusing — pointing to a need for greater education about the ability of FIUL to address many of their financial concerns.

A large majority expressed interest in potentially tax-free sources of income in retirement, increasing the amount of inheritance to family or loved ones, and funds that can be accessed for a special need —all potential benefits of FIUL.

In fact, 84% of men said that the ability to accumulate money on a tax-deferred basis is important to them in retirement; 77% of women agreed this is very or somewhat important to them when it comes to deciding where to put their money.

Life insurance can also ease concerns by providing the potential for supplemental income in retirement (through policy loans and withdrawals from available cash value [2]) that could help fund their desired lifestyle and help with other costs like health care or vacations.

Consider Thomas and Mya, a hypothetical (but typical) couple with two incomes and two young children. [3] After their mortgage, car payments and household expenses, they have $250 in discretionary income each month. They considered opening a Roth IRA, but their household income exceeds the 2023 limit for contributions. Instead, they decided to put that amount into an asset that can offer them financial protection and accumulate in value over time. Using their financial professional, Thomas and Mya purchased an Allianz Life Pro+® Advantage Fixed Index Universal Life Insurance policy.

Along with the death benefit it provides, Thomas and Mya will have accumulation potential through indexed or fixed interest, protection from loss due to market volatility, and access to any available cash value via income-tax-free loans and withdrawals. [2]

Through the power of tax-deferral and compounding, after 20 years of funding their policy with that $250 a month premium, they theoretically have over $80,000 in accumulation value — enough for a down payment on a retirement home in Arizona when they’re 65.

And because their policy will continue to earn interest, by the time they reach 85, they could have over $300K in the death benefit to leave as a legacy. They will want to carefully manage their policy values when taking policy loans to help prevent a policy lapse and potential tax consequences.

Middle Market Myth #2: They can’t afford permanent life insurance.

With household incomes of $100K+, middle market consumers report having between $150 and $400 available each month to put into a financial product that can help ease financial pain points.
This can be enough to fund a permanent life insurance policy, which will provide financial protection in the event of the death of a partner or spouse — and, depending on the policy type, could be a source of funds in the years to come.

Let’s look at another hypothetical couple, Caitlyn and James, married and both aged 35. [4] They would like to start saving for the future college education of their young son, Liam.

After paying their household bills and contributing to their 401(k)s, they have a few hundred dollars left over each month. Since Caitlyn already has a term policy through her work, they purchase an Allianz Life Pro+® Advantage Fixed Index Universal Life Insurance policy with James as the insured, since they rely on his salary for most of their household income.

Permanent life insurance will give them the long-term reassurance of a death benefit that is generally paid to beneficiaries income tax-free. But just as important, the cash value is a potential resource that could be accessed via income-tax-free policy loans and withdrawals [2] to help supplement Liam’s college education.

Assuming Caitlyn and James make $300 monthly premium payments, after 20 years, they could access $15,000 per year via policy loans to supplement college expenses — and still have a death benefit of more than $280,000 by the time they reach 85. They will want to carefully manage their policy values when taking policy loans to help prevent a policy lapse and potential tax consequences.

And unlike a 529 plan, if Liam opts not to go to college, the cash value in the policy could be used however they see fit.

Middle Market Myth #3: Financial professionals lose money pursuing these clients.

Admittedly, a few hundred a month may not sound like much premium to fund a permanent life insurance policy. And when you consider the amount of time it can take to acquire and provide services to a client, it may not immediately make economic sense.

However, if you take a long-term view, middle market clients can be well worth the time and effort you invest in them.

According to the 2022 Insurance Barometer study conducted by LIMRA and Life Happens,

“Two in five parents say they are barely or not at all financially secure. This is a critical issue, as most households haven’t prepared for the loss of a primary wage earner. Almost half (44%) said it would take less than six months to feel financial hardship if this loss happened in their family.” [5]

Additionally, those in the middle market are generally approaching their peak earning years.

There’s a good possibility they’ll have more assets available in the future and will need additional strategies and financial products as they age — especially given that 52% said they’re already concerned about having enough saved for retirement.

Building a relationship with these prospective clients now can lay the groundwork for more revenue (and referrals) in the years ahead.

To learn about other key findings from the 2022 Allianz Middle Market Study and the potential benefits of Allianz Life Pro+ Advantage, visit AllianzMiddleMarket.com.

FIUL is not a source for guaranteed income in retirement and is not a traditional college funding vehicle.

1. The 2022 Allianz Middle Market Study was conducted by Allianz Life as an online survey in August 2022 with 800 respondents, ages 25-40 years. Respondents have an annual household income of $100,000+ and either 1) contribute $20,500 or more to retirement investment accounts, or 2) meet or exceed their employee sponsored match and is making/interested in making additional contributions to another account.

2. Policy loans and withdrawals will reduce the available cash value and death benefit and may cause the policy to lapse, or affect guarantees against lapse. Withdrawals in excess of premiums paid will be subject to ordinary income tax. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. If a policy is a modified endowment contract (MEC), policy loans and withdrawals will be taxable as ordinary income to the extent there are earnings in the policy. If any of these features are exercised prior to age 59½ on a MEC, a 10% federal additional tax may be imposed. Tax laws are subject to change and you should consult a tax professional.

3. This hypothetical example is provided for illustrative purposes and does not represent an actual Allianz client. Assumptions: Premium payment: $250 annually for 15 years, 35 old Male, Preferred Plus, 6.5% nonguaranteed illustrated rate.

4. This hypothetical example is provided for illustrative purposes and does not represent an actual Allianz client. Assumptions: Premium payment: $300 monthly for 10 years, 35 old Male, Preferred Plus, 6.5% nonguaranteed illustrated rate, indexed loan years 20-23.

5. 2022 Insurance Barometer Study Reveals the Secret to Financial Security is Owning Life Insurance (limra.com)

This notice does not apply in the state of New York.

Allianz Life Insurance Company of North America does not provide financial planning services.

Product and feature availability may vary by state and broker/dealer.

Guarantees are backed solely by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America.

Products are issued by Allianz Life Insurance Company of North America, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. 800.950.1962. www.allianzlife.com